§ 1100. The power to pass laws on the subject of bankruptcies
was not in the original draft of the constitution. [Volume 2, Page 640]
The original article was committed to a committee together
with the following proposition: "to establish uniform
laws upon the subject of bankruptcies, and respecting
the damages arising on the protest of foreign bills of
exchange." The committee subsequently made a report in
favour of incorporating the clause on the subject of bankruptcies
into the constitution; and it was adopted by a vote
of nine states against one. The brevity, with which this
subject is treated by the Federalist, is quite remarkable.
The only passage in that elaborate commentary, in which
the subject is treated, is as follows: "The power of establishing
uniform laws of bankruptcy is so intimately connected
with the regulation of commerce, and will prevent
so many frauds, where the parties or their property may
lie, or be removed into different states, that the expediency
of it seems not likely to be drawn in question."

§ 1101. The subject, however, deserves a more exact
consideration. Before the adoption of the constitution the
states severally possessed the exclusive right, as matter belonging
to their general sovereignty, to pass laws upon the
subject of bankruptcy and insolvency. Without stopping at
present to consider, what is the precise meaning of each
of these terms, as contradistinguished from the other; it
may be stated, that the general object of all bankrupt and
insolvent laws is, on the one hand, to secure to creditors
an appropriation of the property of their debtors pro tanto
to the discharge of their debts, whenever the latter are unable
to discharge the whole amount; and, on the other
hand, to relieve unfortunate and honest debtors from perpetual
bondage to their creditors, either in the shape of
unlimited imprisonment to coerce payment of their debts,
or of an absolute right to appropriate and monopolize all
their future earnings. The latter course obviously destroys
all encouragement to industry and enterprize on the part
of the unfortunate debtor, by taking from him all the just
rewards of his labour, and leaving him a miserable pittance,
dependent upon the bounty or forbearance of his
creditors. The former is, if possible, more harsh, severe,
and indefensible. It makes poverty and misfortune, in
themselves sufficiently heavy burthens, the subject or the
occasion of penalties and punishments. Imprisonment, as
a civil remedy, admits of no defence, except as it is used
to coerce fraudulent debtors to yield up their present
property to their creditors, in discharge of their engagements.
But when the debtors have no property, or have
yielded up the whole to their creditors, to allow the latter
at their mere pleasure to imprison them, is a refinement
in cruelty, and an indulgence of private passions, which
could hardly find apology in an enlightened despotism;
and are utterly at war with all the rights and duties of free
governments. Such a system of legislation is as unjust, as it
is unfeeling. It is incompatible with the first precepts of
Christianity; and is a living reproach to the nations of
christendom, carrying them back to the worst ages of paganism.
One of the first duties of legislation, while it provides
amply for the sacred obligation of contracts, and the
remedies to enforce them, certainly is, pari passu, to relieve
the unfortunate and meritorious debtor from a slavery
of mind and body, which cuts him off from a fair enjoyment
of the common benefits of society, and robs his
family of the fruits of his labour, and the benefits of his
paternal superintendence. A national government, which
did not possess this power of legislation, would be little
worthy of the exalted functions of guarding the happiness,
and supporting the rights of a free people. It might guard
against political oppressions, only to render private
oppressions more intolerable, and more glaring.

§ 1102. But there are peculiar reasons, independent of
these general considerations, why the government of the
United States should be entrusted with this power. They
result from the importance of preserving harmony, promoting
justice, and securing equality of rights and remedies
among the citizens of all the states. It is obvious, that
if the power is exclusively vested in the states, each one
will be at liberty to frame such a system of legislation upon
the subject of bankruptcy and insolvency, as best suits its
own local interests, and pursuits. Under such circumstances
no uniformity of system or operations can be expected.
One state may adopt a system of general insolvency;
another, a limited or temporary system; one may
relieve from the obligation of contracts; another only from
imprisonment; another may adopt a still more restrictive
course of occasional relief; and another may refuse to act
in any manner upon the subject. The laws of one state may
give undue preferences to one class of creditors, as for
instance, to creditors by bond, or judgment; another may
provide for an equality of debts, and a distribution pro ratâ
without distinction among all. One may prefer creditors
living within the state to all living without; securing to the
former an entire priority of payment out of the assets. Another
may, with a more liberal justice, provide for the
equal payment of all, at home and abroad, without favour
or preference. In short, diversities of almost infinite variety
and object may be introduced into the local system,
which may work gross injustice and inequality, and nourish
feuds and discontents in neighbouring states. What is
here stated, is not purely speculative. It has occurred
among the American states in the most offensive forms,
without any apparent reluctance or compunction on the
part of the offending state. There will always be found in
every state a large mass of politicians, who will deem it
more safe to consult their own temporary interests and
popularity, by a narrow system of preferences, than to enlarge
the boundaries, so as to give to distant creditors a
fair share of the fortune of a ruined debtor. There can be
no other adequate remedy, than giving a power to the
general government, to introduce and perpetuate a uniform
system.

§ 1103. In the next place it is clear, that no state can
introduce any system, which shall extend beyond its own
territorial limits, and the persons, who are subject to its
jurisdiction. Creditors residing in other states cannot be
bound by its laws; and debts contracted in other states are
beyond the reach of its legislation. It can neither discharge
the obligation of such contracts, nor touch the remedies,
which relate to them in any other jurisdiction. So that the
most meritorious insolvent debtor will be harassed by new
suits, and new litigations, as often as he moves out of the
state boundaries. His whole property may be absorbed by
his creditors residing in a single state, and he may be left [Volume 2, Page 641]
to the severe retributions of judicial process in every other
state in the Union. Among a people, whose general and
commercial intercourse must be so great, and so constantly
increasing, as in the United States, this alone would be a
most enormous evil, and bear with peculiar severity upon
all the commercial states. Very few persons engaged in active
business will be without debtors or creditors in many
states in the Union. The evil is incapable of being redressed
by the states. It can be adequately redressed only
by the power of the Union. One of the most pressing
grievances, bearing upon commercial, manufacturing, and
agricultural interests at the present moment, is the total
want of a general system of bankruptcy. It is well known,
that the power has lain dormant, except for a short period,
ever since the constitution was adopted; and the excellent
system, then put into operation, was repealed, before it
had any fair trial, upon grounds generally believed to be
wholly beside its merits, and from causes more easily understood,
than deliberately vindicated.

§ 1104. In the next place, the power is important in regard
to foreign countries, and to our commercial credits
and intercourse with them. Unless the general government
were invested with authority to pass suitable laws, which
should give reciprocity and equality in cases of bankruptcies
here, there would be danger, that the state legislation
might, by undue domestic preferences and favours, compel
foreign countries to retaliate; and instead of allowing
creditors in the United States to partake an equality of
benefits in cases of bankruptcies, to postpone them to all
others. The existence of the power is, therefore, eminently
useful; first, as a check upon undue state legislation; and
secondly, as a means of redressing any grievances sustained
by foreigners in commercial transactions.

§ 1105. It cannot but be matter of regret, that a power
so salutary should have hitherto remained (as has been already
intimated) a mere dead letter. It is extraordinary,
that a commercial nation, spreading its enterprise through
the whole world, and possessing such an infinitely varied,
internal trade, reaching almost to every cottage in the most
distant states, should voluntarily surrender up a system,
which has elsewhere enjoyed such general favour, as the
best security of creditors against fraud, and the best protection
of debtors against oppression.

§ 1106. What laws are to be deemed bankrupt laws
within the meaning of the constitution has been a matter
of much forensic discussion and argument. Attempts have
been made to distinguish between bankrupt laws and insolvent
laws. For example, it has been said, that laws,
which merely liberate the person of the debtor, are insolvent
laws, and those, which discharge the contract, are
bankrupt laws. But it would be very difficult to sustain this
distinction by any uniformity of laws at home or abroad.
In some of the states, laws, known as insolvent laws, discharge
the person only; in others, they discharge the contract.
And if congress were to pass a bankrupt act, which
should discharge the person only of the bankrupt, and
leave his future acquisitions liable to his creditors, there
would be great difficulty in saying, that such an act was
not in the sense of the constitution a bankrupt act, and so
within the power of congress. Again; it has been said, that
insolvent laws act on imprisoned debtors only at their own
instance; and bankrupt laws only at the instance of creditors.
But, however true this may have been in past times,
as the actual course of English legislation, it is not true,
and never was true, as a distinction in colonial legislation.
In England it was an accident in the system, and not a
material ground to discriminate, who were to be deemed
in a legal sense insolvents, or bankrupts. And if an act of
congress should be passed, which should authorize a commission
of bankruptcy to issue at the instance of the
debtor, no court would on this account be warranted in
saying, that the act was unconstitutional, and the commission
a nullity. It is believed, that no laws ever were passed
in America by the colonies or states, which had the technical
denomination of "bankrupt laws." But insolvent laws,
quite co-extensive with the English bankrupt system in
their operations and objects, have not been unfrequent in
colonial and state legislation. No distinction was ever practically,
or even theoretically attempted to be made between
bankruptcies and insolvencies. And an historical review of
the colonial and state legislation will abundantly show, that
a bankrupt law may contain those regulations, which are
generally found in insolvent laws; and that an insolvent
law may contain those, which are common to bankrupt
laws.

§ 1107. The truth is, that the English system of bankruptcy,
as well as the name, was borrowed from the continental
jurisprudence, and derivatively from the Roman
law. "We have fetched," says Lord Coke, "as well the
name, as the wickedness of bankrupts, from foreign nations;
for banque in the French is mensa, and a banquer or
eschanger is mensarius; and route is a sign or mark, as we
say a cart route is the sign or mark, where the cart hath
gone. Metaphorically it is taken for him, that hath wasted
his estate, and removed his bank, so as there is left but a
mention thereof. Some say it should be derived from banque
and rumpue, as he that hath broken his bank or state.
Mr. Justice Blackstone inclines strongly to this latter intimation,
saying, that the word is derived from the word
bancus, or banque, which signifies the table or counter of
a tradesman, and ruptus, broken; denoting thereby one,
whose shop or place of trade is broken and gone. It is
observable, that the first statute against bankrupt, is
'against such persons, as do make bankrupt,' (34 Hen. 8,
ch. 4,) which is a literal translation of the French idiom,
qui font banque route."

§ 1108. The system of discharging persons, who were
unable to pay their debts, was transferred from the Roman
law into continental jurisprudence at an early period. To
the glory of Christianity let it be said, that the law of cession
(cessio bonorum) was introduced by the Christian emperors
of Rome, whereby, if a debtor ceded, or yielded up
all his property to his creditors, he was secured from being
dragged to gaol, omni quoque corporali cruciau semoto; for as
the emperor (Justinian) justly observed, inhumanum erat
spoliatum fortunis suis in solidum damnari; a noble declaration,
which the American republics would do well to follow,
and not merely to praise. Neither by the Roman, nor
the continental law, was the cessio bonorum confined to traders,
but it extended to all persons. It may be added, that [Volume 2, Page 642]
the cessio bonorum of the Roman law, and that, which at
present prevails in most parts of the continent of Europe,
only exempted the debtor from imprisonment. It did not
release or discharge the debt, or exempt the future acquisitions
of the debtor from execution for the debt. The English
statute, commonly called the "Lords' Act," went no
farther, than to discharge the debtor's person. And it may
be laid down, as the law of Germany, France, Holland,
Scotland, and England, that their insolvent laws are not
more extensive in their operation, than the cessio bonorum
of the civil law. In some parts of Germany, we are informed
by Huberus and Heineccius, a cessio bonorum does
not even work a discharge of the debtor's person, and
much less of his future effects. But with a view to the advancement
of commerce, and the benefit of creditors, the
systems, now commonly known by the name of "bankrupt
laws," were introduced; and allowed a proceeding to be
had at the instance of the creditors against an unwilling
debtor, when he did not choose to yield up his property;
or, as it is phrased in our law, bankrupt laws were originally
proceedings in invitum. In the English system the
bankrupt laws are limited to persons, who are traders, or
connected with matters of trade and commerce, as such
persons are peculiarly liable to accidental losses, and to an
inability of paying their debts without any fault of their
own. But this is a mere matter of policy, and by no means
enters into the nature of such laws. There is nothing in
the nature, or reason of such laws to prevent their being
applied to any other class of unfortunate and meritorious
debtors.

§ 1109. How far the power of congress to pass uniform
laws on the subject of bankruptcies supersedes the authority
of state legislation on the same subject, has been a matter
of much elaborate forensic discussion. It has been
strenuously maintained by some learned minds, that the
power in congress is exclusive of that of the states; and,
whether exerted or not, it supersedes state legislation. On
the other hand, it has been maintained, that the power in
congress is not exclusive; that when congress has acted
upon the subject, to the extent of the national legislation
the power of the states is controlled and limited; but when
unexerted, the states are at liberty to exercise the power in
its full extent, unless so far as they are controlled by other
constitutional provisions. And this latter opinion is now
firmly established by judicial decisions. As this doctrine
seems now to have obtained a general acquiescence, it does
not seem necessary to review the reasoning, on which the
different opinions are founded; although, as a new question,
it is probably as much open to controversy, as any
one, which has ever given rise to judicial argumentation.
But upon all such subjects it seems desirable to adopt the
sound practical maxim, Interest reipublicae, ut finis sit litium.

§ 1110. It is, however, to be understood, that although
the states still retain the power to pass insolvent and bankrupt
laws, that power is not unlimited, as it was before the
constitution. It does not, as will be presently seen, extend
to the passing of insolvent or bankrupt acts, which shall
discharge the obligation of antecedent contracts. It can
discharge such contracts only, as are made subsequently to
the passing of such acts, and such, as are made within the
state between citizens of the same state. It does not extend
to contracts made with a citizen of another state within the
state, nor to any contracts made in other states.